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Updated January 15th, 2024 at 08:29 IST

Bond yields expected to see a dip amid easing core inflation

The 10-year benchmark bond yield is projected to fluctuate within the 7.14 per cent-7.19 per cent range until the upcoming debt auction.

Reported by: Business Desk
Government bonds
Government bonds | Image:Republic
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Government bond yields are expected to see a slight dip in early trade on Monday, attributed to the expected easing of core inflation in December, despite a rise in headline retail inflation. The 10-year benchmark bond yield is projected to fluctuate within the 7.14 per cent-7.19 per cent range until the upcoming debt auction, following its previous close at 7.1791 per cent, as noted by a trader from a primary dealership.

"While the headline inflation numbers did not bring any major surprises, the consistent easing in core inflation figures is viewed positively by the market. We might witness some bullish activity today," mentioned the trader.

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December witnessed an increase in annual retail inflation, marking the fastest pace in four months at 5.69 per cent, driven by higher prices of certain food items. However, the focus on core inflation, excluding volatile food and energy prices, indicates an expected dip to 3.8 per cent-3.89 per cent in December from 4.05 per cent-4.2 per cent in November, according to economists.

Projections for January suggest a sub-5 per cent retail inflation, with the impact of adverse base effects diminishing and food inflation moderating, according to insights from IDFC First Bank. The bank also predicts a continued softening of core inflation to 3.6 per cent in January.

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Amid these developments, the Reserve Bank of India's (RBI) monetary policy committee has maintained the benchmark repo rate at 6.50 per cent for five consecutive meetings. With inflation persisting above the central bank's target, the RBI report suggests that monetary policy might remain in "restrictive territory."

US yields declined last week, following unexpected drops in December producer prices data, fuelling speculation of an early interest rate cut by the Federal Reserve. The 10-year US Treasury yield eased to 3.95 per cent on Friday, marking a 9 bps decline for the week.

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(With Reuters inputs)
 

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Published January 15th, 2024 at 08:29 IST

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